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Finance firms aim to wipe out payday advances rule after their US class action win

The US Congress killed a rule and that allowed customers to come together to sue financial institutions over disputes. The lobbyists and lawyers said that it is expected that the door is going to open for such attempts to push back a rule that restricts payday advances providers.

On Tuesday, the Senate killed a rule banning credit card issuers, banks and other financial firms from using forced arbitration clauses in their account contracts. Since President Donald Trump took office, this is one of the most important roll-back of financial policy implemented during the Obama-era.

Even the decision has been passed by a really marginal majority of fifty-one to fifty, it could potentially set the stage for more future attacks on rules implemented by the CFPB, a regulator that was created after the 2007-09 financial crisis. Consumer advocates are of the opinion that the Consumer Financial Protection Bureau (CFPB) plays a crucial role in protecting the Americans against financial abuse.

Small-dollar lending is the new limitations placed on payday lenders and it is seen as the next target.

The campaign director for Americans for Financial Reform, Gynnie Robnett, said that she feels payday lending is going to be the next major fight. She also said that the fight is going to be a long one because the payday lending industry is tenacious.

By using legal mechanism, called the Congressional Review Act (CRA), the Congress managed to kill the arbitration rule. The CRA allows the Congress to repeal any new federal regulations that have been issued by government agencies.

A frequent critic of the bureau’s rules and leader of the consumer financial services group at law firm Ballard Spahr, Alan Kaplinsky, said that the industry had decided to first see what happens with the arbitration rule before moving onto payday lending.

The CFPB finalized their rule that limits a lender’s ability to make profit from short-term, high-interest loans this month. According to the bureau, this move is going to protect the consumers from becoming a victim of debt traps, but the US payday loan providers say that it could potentially wipe out the profits in their industry worth $6 billion.

Some of the Republican lawmakers are pushing to repeal the law. But, this time they might find it a bit hard to attract support for the firms that are accused by consumer advocates of taking advantage of the poor.

Big banks might also oppose killing of the payday lending rule. This is because the banks are all set to scoop much of the payday lender’s business under the brand new regime.

But, payday loan providers said that the decision for the arbitration rule set a precedent for Congress to stop what they described as an unchecked overreach by the bureau.

Senior Vice President of public affairs at lending company Advance America, Jamie Fulmer, said that the Congress has taken a really meaningful step towards holding the bureau accountable by overturning their arbitration rule. He said that now the same must be implemented for all of CFPB’s flawed rules.

The executive director of the Financial Service Center of America, Ed D’Alessio, said that the Congress killed the arbitration rule since it was based on inaccurate research. He said that the same was the case with payday lending rules, as well.

He said that he hopes the lawmakers are going to take the necessary steps when it comes to the bureau’s small-dollar rule.

CFPB’s spokesperson was not available for comment, but if public records are to be believed, it showed that they closely followed the law through the entire payday rulemaking process.

Richard Cordray, the CFPB Director, said of the Senate vote that the Wall Street has won, but the ordinary people lost. But, millions of Americans are hopeful that the payday advances rule by the bureau is going to be killed very soon.

 

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